Addressing Tax Risks Involving Bank Losses
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The financial and economic crisis had a devastating impact on bank profits, with loss-making banks reporting global commercial losses of around USD 400 billion in 2008. This comprehensive report sets the market context for bank losses and provides an overview of the tax treatment of such losses in 17 OECD countries; describes the tax risks that arise in relation to bank losses from the perspective of both banks and revenue bodies; outlines the incentives that give rise to those risks; and describes the tools revenue bodies have to manage these potential compliance risks. It concludes with recommendations for revenue bodies and for banks on how risks involving bank losses can best be managed and reduced.
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Executive Summary
The effects of the financial and economic crisis on bank profits worldwide has been phenomenal, with write-downs and losses of USD 1.3 trillion up to January 2010 specifically related to the financial crisis, and knock-on effects throughout the banking sector. Banks in countries participating in this study account for over 80% of global pretax losses of USD 400 billion in 2008, with the largest losses arising to banks headquartered in the US and UK, although other countries’ banks suffered larger losses measured as a share of their home country GDP.
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